EU Loosens Anti-Subsidy Shackles to Help Fund Green Overhaul

(Bloomberg) -- The European Union will loosen its stringent state-aid rules to make it easier for nations to help fund the bloc’s transition to a climate-neutral economy by the middle of the century.

Member states will be allowed to provide aid amounting to up to 100% of the funding gap and introduce new instruments such as Contracts for Difference, which are seen as crucial for scaling up renewable technologies, according to the European Commission. The new guidelines, which will take effect from January, also aim to incentivize investment into clean transport and the renovating of buildings.

The EU will need to mobilize billions of euros to help fund the transition to a green economy after it unveiled earlier this year ambitious legislation to cut emissions by 55% by 2030 from 1990 levels. While the bloc is aiming to channel private finance into environmentally friendly projects, member states will also need to ramp up spending to help fund the areas that are less profitable in the short term.

“Europe will need a considerable amount of sustainable investments to support its green transition,” said Margrethe Vestager, the EU’s antitrust chief. “Although a significant share will come from the private sector, public support will play a role in ensuring that the green transition happens fast.”

Gas Controversy

As part of the state-aid guidelines, the commission will revise current rules so as to make it easier for countries to reduce electricity levies for energy intensive users. It’s a change that aims to stop activities like steel or cement production moving outside the bloc to countries where environmental rules are less stringent. The region has been battered by record high energy prices over recent months.

Controversially, the rules include a “special clause” that allows for poorer member states to use state aid to help finance natural gas projects as a transition away from coal, according to Vestager. Such funding would have to provide for “future-proofing” such projects, including possible carbon capture technologies or the ability to be able to take hydrogen, she added.

“Natural gas is a special case because for now it acts as a bridge toward our path to renewables,” Vestager said. “But a bridge is not a destination.”

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